Discussion of article "On Methods to Detect Overbought/Oversold Zones. Part I"

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New article On Methods to Detect Overbought/Oversold Zones. Part I has been published:

Overbought/oversold zones characterize a certain state of the market, differentiating through weaker changes in the prices of securities. This adverse change in the synamics is pronounced most at the final stage in the development of trends of any scales. Since the profit value in trading depends directly on the capability of covering as large trend amplitude as possible, the accuracy of detecting such zones is a key task in trading with any securities whatsoever.

Depending on the accuracy of identifying the overbought/oversold zones (which is always a probabilistic estimate, i.e., a forecast), there are three different types of forecasts: Early forecast, accurate forecast, and retard forecast. As a standard for defining the forecast type, we use the maximum value of trend — it is always the support fractal extremum level, after which a reversal takes place (or correction, the amplitude of which is critical for the trading strategy being used). Therefore, the closer a forecast point is to this standard (by time or by amplitude), the more accurate the forecast of appearing an overbought/oversold zone is.

In fact, we're talking about the trend end forecast types, depending on the accuracy of detecting the overbought/oversold zones.

Let us consider this, exemplified by the overbought (USDCAD, D1):


Ending Trend Forecast Types

Fig.1. Ending trend forecast types, depending on the accuracy of identifying the overbought zone

Fig. 1 shows three red points obtained using various indicators to detect the overbought zone. Points from left to right: 1 — early forecast, 2 — accurate forecast, and 3 — retard forecast.

Obviously, "hitting" the trend extremum (accurate forecast of the ending trend) is a perfect market exit scenario if you have an open position. Therefore, the accuracy of forecasting the overbought/oversold zones, as related to that extremum, directly affects the efficiency of trading on financial markets.

Author: Aleksandr Masterskikh

 
It's usually a pain in the arse to find zones. Thank you
 
The topic is very important, but it is considered in this article rather superficially: the author draws some sketchy conclusions based on individual cases with consideration of indicators fitted to his reasoning.
Firstly, to conduct such a full-fledged study you need a database; i.e. the author should first classify (mark the start/end points) at least 50 trends over the last 10 years with uniform coverage of instruments (currencies, indices, commodities); and in a reproducible format (e.g. using the Virtual library from fxsaber). In order not to be petty, you should take movements of 2 months and longer.
Secondly, on the basis of such a base, it is necessary to make a study of indicators with standard parameters, considering them as 'reference' meters (i.e. do not try to first fit a 'metre' to a separate building, but measure all buildings with one metre); and only then draw conclusions about the suitability/non-suitability of standard indicators for certain situations and classes of instruments.
 
What it led to: the author makes wrong conclusions based on biased examples.
For example, a conclusion is made that the RSI indicator is slow and useless. This is a false conclusion based on a single example, without delving into the essence of the indicator. Stochastic measures overbought and oversold as a LINEAR scaling of the current price from the previous swing, while RSI measures the amplitude of movements, and EXPotentially (i.e. the last 'spurts' are evaluated higher). By virtue of its strength, RSI is a post-shock and unique in its kind measure of 'market psychosis' - and accordingly works perfectly well on those types of trend completions, which are characterised by panic actions of participants. In terms of instruments it is commodities and individual stocks, but RSI works poorly on indices, as indices very rarely unfold on a major psychosis (RTS is an exception, as the presence of currency multiplier in it makes it different from ordinary stock indices).
 
Sergey Lebedev:
What it led to: the author makes wrong conclusions based on biased examples.
For example, a conclusion is made that the RSI indicator is slow and useless. This is a false conclusion based on a single example, without delving into the essence of the indicator. Stochastic measures overbought and oversold as a LINEAR scaling of the current price from the previous swing, while RSI measures the amplitude of movements, and EXPotentially (i.e. the last 'spurts' are evaluated higher). By virtue of its strength, RSI is a post-awesome and one-of-a-kind measure of 'market psychosis' - and therefore works perfectly on those types of trend completions, which are characterised by panic actions of participants. In terms of instruments it is commodities and individual stocks, but RSI works poorly on indices, as indices very rarely unfold on a major psychosis (RTS is an exception, as the presence of currency multiplier in it makes it different from ordinary stock indices).

It's nice to get an estimate from a major specialist on doubling and even tripling your trading account (at least that's what your adverts say).

But I don't see any of your works on analytics in general and on RSI indicator in particular.

In my article it is stated that the RSI indicator is considered to work poorly as a signal indicator, based, first of all, on the analysis of the mathematical formula of RSI. In the article it is described in detail, even a beginner can understand it. Besides, my personal experience of using RSI in various trading systems (more than 10 years) confirms my conclusions.

As for your words that I supposedly made conclusions "without going into the essence of the indicator", it is just the opposite - analysis of mathematical formula is a deepening into the essence of the indicator. But you don't show such a deepening, only unsubstantiated accusations.

Can you present to the world your creation based on RSI with the results, as you want, for 10 years? You are an expert in doubling (and tripling) your deposit!

 
bankova.elizabet:
It's usually a pain in the arse to find zones. Thank you

Thank you for your attention to my work! Thank you.

 
Aleksandr Masterskikh:

In my article it is stated that in the part of the RSI indicator there is an opinion about weak work as a signal indicator, based, first of all, on the analysis of the mathematical formula of RSI. In the article it is described in detail, even a beginner can understand it. Besides, my personal experience of using RSI in various trading systems (more than 10 years) confirms my conclusions.

Why did you use for 10 years an indicator, which in your opinion is not effective?

 
Aleksey Vyazmikin:

Why would you use an indicator for 10 years that you don't think is effective?

I am talking about the experience of using various TSs with traditional indicators, including RSI, in testing.

And just the results of such testing did not allow me to use such systems for real trading.

 
Aleksandr Masterskikh:

This is about the experience of using various TSs with traditional indicators, including RSI, in testing.

And just the results of such testing did not allow me to use such systems for real trading.

In my opinion, indicators work not from their mathematical formulas, but from their popularity.

From my experience RSI is one of the best indicators, but in a different graphical representation - there is a lot of useful information there.

 
Aleksandr Masterskikh:

It's nice to get an assessment from a major expert on doubling and even tripling a trading account !

Alexander, I am very surprised to see in your comments the dismantling of my profile in response to constructive criticism of your 'research' - a complete kindergarten. Showing such a primitive reaction you just show everyone your low intellectual level.
Further, the statement that you have understood the work of the RSI indicator by citing its well-known formula in the article is nonsense. There is no analysis there - there is only your superficial reasoning, supported by examples of just those trend reversals, where there was no panic selling/buying. I just wrote to you about the essence of RSI measurements.
Make a Trend Catalogue, study 100+ cases, and you will understand that any Trend is a psychological phenomenon, not an element of mathematical physics.
Further, the fact that you have been designing slivators for 10+ years, stupidly substituting standard indicators into them - does not surprise me, it is the norm for the algo crowd. So your argument about 10 years of meaningless picking is not an argument.
It is a pity that there is no reader's rating of articles here - your article is the lowest rating by the degree of biased and flawed conclusions.
 
Sergey Lebedev:
Alexander, I am very surprised to see in your comments the dismantling of my profile in response to constructive criticism of your 'research' - a complete kindergarten. Showing such a primitive reaction you just show everyone your low intellectual level.
Further, the statement that you have understood the work of the RSI indicator by citing its well-known formula in the article is nonsense. There is no analysis there - there is only your superficial reasoning, supported by examples of just those trend reversals, where there was no panic selling/buying. I just wrote to you about the essence of RSI measurements.
Make a Trend Catalogue, study 100+ cases and you will understand that any Trend is a psychological phenomenon, not an element of mathematical physics.
Further, the fact that you have been designing slivators for 10+ years, stupidly substituting standard indicators into them - I am not surprised, this is the norm for the algo crowd. So your argument about 10 years of meaningless picking is not an argument.
It is a pity that there is no reader's rating of articles here - your article is the lowest rating by the degree of biased and flawed conclusions.

It is not for you to judge about my intellectual level. For example, my previous article has more than 60 thousand readers in several languages, and according to the opinion of the English-speaking audience it is in the top ten.

But your level is not clear - it is necessary to say such a thing about RSI indicator:"the only one of its kind measuring 'market psychosis'". You are just a genius!

You offer trading signals that supposedly lead to doubling (in 3 weeks) and tripling (in 5 months) of the deposit. Probably you achieved this with the help of RSI indicator, which you so zealously defend? Serious traders (and I work with investment companies and banks) have not been using traditional indicators as their main tools for a long time. Perhaps this is news to you?

Now about my trading systems that allegedly drain the deposit. Have you seen my trading systems? No, you have not seen them and could not see them. There are no indicators in them at all! And I certainly didn't sell you anything. So here again, just misinformation!

Now for the trends. You are at your best again -"Trends are a psychological phenomenon, not an element of mathematical physics".

"Mathematical physics" - and even in relation to financial markets - is cool! Where did you see such a term in the article? Incorrect!

If you had read the article carefully, you would have realised that the article is intended for a wide range of participants of financial markets, who, despite everything, use traditional indicators. And I only expressed my opinion (in my opinion, quite reasoned) that the RSI indicator is better to use not as a signal indicator, but as a general filter (i.e. the entry point is better to be determined by another indicator). And nothing more.

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